Uber vs Lyft: what to expect from Q2 results
The jury is still out on ride-sharing firms Uber and Lyft. With shares struggling to move above their IPO prices, can the ride-sharing firms take it up a gear?
Uber and Lyft: when are they reporting earnings?
The smaller of the two ride-sharing firms, Lyft, will be the first to release its results on Wednesday 7 August, with Uber to follow on Thursday 8 August. Each company will release their respective results at 2pm Pacific Time, which translates to 10pm in London. Both are reporting results for the second quarter (Q2) of 2019.
Uber vs Lyft: what does the City expect?
Uber and Lyft have had a bumpy start since they went public earlier this year. Shares in both companies remain below their initial public offering (IPO) price (of $45 and $72, respectively) as the hype that had built up ahead of their listings has given way to concerns over the sustainability of these cash-swallowing businesses.
Both companies warned in Q1 results that increased competition, with one another and a number of other newer entrants, was driving an aggressive competition on price. This was encouraging them to subsidise journeys by paying their drivers incentives to plug the shortfall. However, both companies said the focus on price was waning as they entered Q2. Uber’s chief financial officer (CFO) Nelson Chai said the firm had 'started to see signs of less aggressive pricing by some ride-sharing competitors', while Lyft said 'competitive pressure in terms of rider incentives' had eased.
Therefore, there is an expectation that the margin each company makes per trip will improve in Q2 as they raise prices and spend less on driver incentives. While this will be welcome there are fears that higher prices could hamper growth in terms of riders and revenue, which have already deaccelerated at both businesses this year.
Uber and Lyft are both expected to see slower top-line growth in Q2, and the focus will be on how it compares to Q1. Uber’s Q2 revenue is expected to be $3.06 billion, according to a Bloomberg consensus, 1.3% less than Q1 2019 but markedly higher than the year before. Lyft’s Q2 revenue is forecast to nudge just 4.3% higher quarter-on-quarter (QoQ) compared to 27% the year before.
Uber vs Lyft: Q2 results expectations (Bloomberg Q2 consensus: 2 July 2019)
|Revenue||$3.058 billion||$809.429 million|
|Earnings before interest, taxes, depreciation and amortisation (EBITDA)||$970.318 million||$274.522 million|
|Operating loss||$4.962 billion||$313.923 million|
|Adjusted net loss||$1.177 billion||$302.438 million|
|Adjusted earnings per share (EPS)||$0.96||$1.002|
What to watch out for
Uber is the market leader when it comes to ride sharing, but it is a very different business to Lyft because of its geographical reach and diversification through the likes of UberEats or UberFreight. Having raised over $8 billion in its IPO, the company believes it can spend big and force smaller rivals out. Right now, it’s all about capturing market share and keeping ahead.
Uber has reported average quarterly ride growth of 36% over the past four quarters but this top-line growth is expected to slow in Q2 as revenue-per-ride increases. Uber rolled-out its loyalty programme nationwide in the US at the end of Q1, which may help stem any slowdown. It is also worth looking out for commentary on its new driver rewards programme in the US, which aims to attract and maintain loyalty from drivers by offering discounts on petrol and maintenance work.
Bloomberg forecasts Uber’s take-rate – the amount it makes on each trip – will be around 19% in Q2 while Wedbush Securities believes the company could beat its forecast of 19.7%. Uber’s take-rate was 18.8% in Q1. Investors will also want to see some improvement in its contribution margin that is used to measure the underlying performance of the business after it turned to -4.5% in Q1 – the worst on record for two years. Uber’s CFO said the contribution margin would improve every quarter in 2019, implying the worst is behind the business after Q1.
Figures from Wedbush suggests revenue from UberEats, a much smaller but faster-growing business, could beat its $321 million estimate. The growth from UberEats is expected to keep Uber’s overall bookings growth above 30%, according to Bloomberg. UberEats is rapidly expanding on several fronts: more small restaurants are utilising its self-sign-up process, it is expanding deals with bigger partners such as Starbucks, and it is attracting more outlets by allowing them to use their own couriers.
In terms of other updates, investors will want to hear more about the $1 billion investment from Toyota, DENSO and SoftBank into Uber’s Advanced Technologies Group, which homes its development of autonomous vehicles. The investment is expected to close before the end of July. Also watch out for any news on Careem, the ride-sharing firm operating in the Middle East, Africa and Pakistan it is purchasing for $3.1 billion. The deal is expected to close at the start of 2020.
Uber made the frank admission that it may never make money when it released its IPO prospectus – a comment that Lyft has tried to capitalise on. The company, which has drivers operating across most of the US and in Ontario in Canada, as well as swathes of electric scooters and bikes in major cities, has laid out a ‘clear path to profitability’. While Uber’s grand ambitions go well beyond ride sharing, Lyft is happy to put all its efforts into it and markets itself as a more-focused business.
Lyft is also providing better insight by providing quarterly guidance to investors, giving them a better idea of what to expect on results day. For Q2, Lyft expects revenue will be between $800 million to $810 million with quarterly earnings before interest, taxes, depreciation and amortisation (EBITDA) loss of $270 million to $280 million.
Although Lyft has said it is focused on making a sustainable and profitable business rather than growing at any cost, it has warned 2019 will be its ‘peak loss year’. Investors should keep a close eye on any change in full-year guidance for 2019, which currently targets revenue of $3.275 billion to $3.30 billion, with an EBITDA loss of $1.15 billion to $1.175 billion as it continues to invest in its scooters and bikes. If achieved, annual revenue this year will be over 50% higher than 2018 while the loss will have widened from $943.5 million. Lyft may also provide a glimpse into what to expect in 2020.
Importantly, Lyft has said it will no longer report figures from bookings or its take-rate from Q2 onwards, arguing there are better metrics to evaluate the performance of the business. Instead, focus will be on revenue per rider in Q2 which, like Uber, should improve as it pays less in driver incentives. Bloomberg has forecast revenue per rider will be around $37.1 in Q2, up 14% year-on-year. Growth in the top-line is expected to slow.
The number of completed rides in Q2 is expected to rise 43% year-on-year in Q2, a marked slowdown from the 71% reported in Q2 2018, while growth in the number of active riders is expected to be about 38%. Wedbush is expecting Lyft will have ended Q2 with around 21.7 million users – 40% more than a year earlier.
How to trade Uber and Lyft’s Q2 results
Many rightly question how a company like Uber can be attractive considering it plans to burn cash without aiming to make a profit, but these companies derive their value from their potential and not their bottom-lines. Growth may be slowing but the ride-sharing industry still has plenty of room to expand, and many are focused on the long-term prospects for Uber and Lyft, especially the cost reductions and opportunities that come from the likes of autonomous vehicles.
As pointed out by Bank of America Merrill Lynch, that would make drivers – the biggest cost on the balance sheet – obsolete, allowing them to provide cheap travel for customers at a much higher margin. This view is shared by the likes of Deutsche Bank which, upon commencing coverage of Uber with a Buy rating in early June, said ‘concerns related to Uber’s profitability outlook pose less risk than Facebook’s transition to mobile’.
Brokers have similar stances on both Uber and Lyft, according to a Reuters poll (as of June 1, 2019). Both companies boast Buy ratings ahead of their Q2 results, although significant numbers believe they are adequately valued.
Uber vs Lyft: broker recommendations (Reuters: 1 July 2019)
Uber vs Lyft: both hope to put their foot on the pedal after false start
Uber and Lyft still need to earn their stripes as far as investors are concerned and both companies will hope their Q2 results can act as a catalyst to make up for the disappointing share price performance since listing. As the first to report, pressure initially falls on Lyft but this means it will also set the stage for its larger rival. If Lyft beats forecasts, then this will raise expectations for Uber’s results the day after. Similarly, if Lyft’s results are not as good as anticipated then expectations at Uber will fall, although it will also give Uber the opportunity to surprise the market if it can outperform its smaller rival. It is crucial that investors tune in for Lyft’s results even if their only interested in Uber.
The focus is slightly different in Q2 compared to Q1. Whereas Uber and Lyft had aggressively reduced prices to compete during the first three months of the year both have said this should ease in Q2. This turns attention to how well they both improve in terms of monetising their trips and user base. Both have looked for other avenues to bring more stable pricing and reliable custom to their doors, including striking deals with corporate clients.
The pair have gone public at a difficult time. Growth is starting to slow, and competition is increasing. Uber finds itself competing with new competition in a number of its international markets. For example, in London, Ola, which is already fighting with Uber over market share in India, is planning to give the US firm a run for its money when it launches in the UK later this year. French firm Kapten also entered the UK capital earlier this year, as did Estonia-based Bolt (formerly known as Taxify).
Long-term hopes are pinned on the development of autonomous vehicles and diversification into other related markets, whether that be Uber’s food delivery platform or Lyft’s electric scooters and bikes. While turning a profit is not the priority for most investors, all of them should be questioning whether Uber and Lyft can survive that long. Building and maintaining a fleet of self-driving cars, for example, is not cheap, even if it means being able to avoid paying drivers. Lyft is trying to create a self-sustaining, profitable business using the cash it raised at IPO – whether or not it succeeds is another question. Creating a sustainable business doesn’t seem to feature in discussions at Uber, which has boasted about its plans to spend, spend and spend the $8 billion it raised from investors to push its rivals out the market.
For Uber, the long-term investment case still rests on its global reach and the fact it is the market leader everywhere it operates. With hopes of becoming a ‘one stop-shop for local transportation and commerce’, Uber needs to maintain or extend its leadership to keep investors on side in the short-term. Although Lyft is the smaller of the two, there is greater expectations for the company to become profitable sooner. To do that, it needs to improve loyalty among its customers and reduce churn, especially at a time when so many companies are vying for the ride-sharing dollar.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get spreads from just 0.1% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.